More Tax Liabilities for those companies gone for M&A under new Slump sale norms

Businesses would have to reassess the tax liabilities and possibility restriction mergers and acquisition in order to comply with the new rules for competition of fair market value of capital asset in slums sales transactions. The business entities have been transferred within a group or outside a group at book value rather than market value are likely to see a higher tax liability depending on the fair market value of the asset as per the new rule.

It will affect group restructuring transactions where business undertakings used to transferred for book value irrespective of fair market value of underlying assets especially immovable property since now such transactions may attract higher tax liabilities  the rules will apply to ongoing transactions as well as those completed in financial year 21 since the rules come into effect from April 1, 2020 so in some cases where the transactions has already been carried out the entities will need to evaluate if the consideration is in accordance with the rules.

The slump sale amendment rules notified on Monday by the CBDT provided for taking the higher of the fair value of the business transferred or the fair value of the consideration as deemed consideration for computing capital gains on slum sale or exchange even if the actual consideration received is lower.   


The fair value of assets transferred is defined to mean the book value except in case of certain assets where it could be the quoted price such as shares securities fair market value as per the valuation report for jewelry or artistic work the fair value of consideration received is defined as fair market value Except that in case of immovable property received for which the stamp duty value has been taken.

Some experts added that the computation mechanism spelled out by the rules could lead to litigation since some sale take the combined value of assets being transferred as consideration without getting into individual. 


This may open a Pandora’s box on determining whether the transaction undertaken is a slump sale transaction or an item wise asset sale the rule essentially provides that all assets of the business undertaking other than the five specific categories of assets immovable property jewelry share securities and artistic work will be valued essentially based on book value on the other hand fair market value of these five categories Will be determined as per existing valuation rules assuming that these assets are being transferred individually. S-ET



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